We like to think that we are progressing well toward gender equality. But how close are we to reaching that in finance? Does financial equality exist?
It often takes a black swan event to underline the need for social progress on female independence. Progress toward us attaining our right to vote in most Western countries followed the end of the First World War, and the option for many more of us to have a career came about at the end of the Second World War. The COVID pandemic has now highlighted the need for us, as professional women to gain better financial awareness, independence, and security. At the onset of the pandemic, one in six women worked in the hardest hit sectors such as tourism, hospitality, retail and personal services, compared to one in seven men. It naturally followed that the majority of job losses were among women (1). As the pandemic progressed, more men began losing their jobs as they formed part of, or were dependent on international trade. However, even as male unemployment rates shot up, more females left the workforce in 2020, potentially reversing progress in women’s empowerment. The pandemic has amplified the need for women to take a deeper look into their finances and take ownership of them. Financial gender equality cannot come a day too soon.
Just over a century ago it may have been the norm, that finances were a man’s responsibility. As women, our responsibilities once began and ended with our homes and children, and so, we had very little exposure to or need for financial planning. But is this really the case in 2021?
Financial services are marketed to be gender neutral but often tend to lean toward male needs and preferences. As women, we may face a unique set of financial challenges and therefore we need financial planning that is tailored for our specific needs and wants.
At the end of the day, regardless of gender, we all have the same (or similar) financial goal(s): real financial security for ourselves and our loved ones, to save for retirement and to provide for long-term needs. It is the route taken there, or your individual financial life, that will vary. In the same manner, a woman’s financial life can often take a different shape and pace, and therefore financial planning cannot be a one size fits all, but must be tailored.
Here are five key points you should keep in mind as a female investor.
1. Gap in working life
As women approach their 30s and 40s, they may look for jobs that pay less but offer a more flexible working life to allow them to care for their children or a relative. Some decide to take a few years off work altogether. As a result, earnings can take a dip, sometimes never returning to their previous levels once they fully re-enter the workforce. The COVID pandemic has exacerbated this situation – COVID has created a caregiving crisis with schools and childcare centres closed and elderly and nursing homes being high risk locations. This has created the need for someone to provide extra care to children and relatives. A survey conducted during 2020 found that women are three times more likely than men to be responsible for extra housework and caregiving, resulting in women cutting down on work hours. These women would have a significant gap in their working life which negatively contributes toward their savings and financial goals.
Lost earnings at any point in our lives will impact our ability to save, invest and build future wealth if not properly addressed.
Our two cents: Be mindful of any potential earnings gap and be sure to take this into account when drawing up your financial plan.
2. The retirement gap
It goes without saying that the more money you have, the more money you have available to invest – and this is where we are disadvantaged. As women, we are still notoriously underpaid when compared to our male counterparts. Although not equally prevailing at all stages of our life, the gender pay gap is a very real issue, and millions of women across the globe continue to be underpaid. On average, a woman’s earnings will reach a plateau at around age 44, whereas a man’s earnings typically will continue to grow for another ten years. In general, women tend to save a larger percentage of their annual earnings. However, given that we in general earn less, we still put aside less than men in monetary terms. Women retire earlier than men, allowing us fewer years to accumulate savings. Once we retire, we typically will have higher medical expenses and live longer. This means that a woman in fact will need to have accumulated more savings at retirement.
The gender pay gap continues to prevail in pensions, amplified by gaps in working life as described above. In 2019, women over 65 in the EU received a pension that is on average 29% lower than men. In this context, it is not surprising to note that one in seven pensioners were at risk of poverty in 2019, with this risk being around 4% higher for women.
Our two cents: Work with your financial advisor to create a savings plan that is built around your needs as an individual and not a one size fits all. Think about your future needs in terms of time spent as well as money. Always consider the ‘what ifs.’
3. Your goals and plans
Anyone can fall into the trap of making assumptions based on social expectation rather than a reasoned analysis when drawing up plans for the future. It is often assumed that women will want to take some time off work to fulfil parental or care-giving duties, that we are risk averse, higher spenders, unknowledgeable, and many other stereotypical assumptions. This is not necessarily the case for you. Being pigeonholed into the wrong asset allocation can result in being underserved and our long-term objectives not met. Whether looking to your own future or speaking with your advisor, it’s important to be clear on your where you want your life to take you and what is important to you.
Our two cents: Be clear, vocal and realistic about your life plans and don’t allow yourself to be pigeonholed. Be sure that any advice you are being given is in line with your preferred path and not someone else’s. Aim for a financial plan that meets your real needs and not stereotypical ones. Be sure that you have a strategy that is in line with your priorities and financial goals.
4. Don’t be afraid to seek advice
Statistically, we women have a harder time achieving financial security and growing our wealth. This is attributed to many factors, one of which is our confidence levels. In general, studies have shown that women tend to be far less confident in their investing and saving abilities. The good news, however, is that our confidence levels tend to increase with age. In the same breath, however, women are less likely to engage with a financial advisor; some may feel that it is not worth the cost, others that they do not have enough wealth to do so. Some women also steer away from investing because they prefer to keep a larger sum of liquid cash than others might for unexpected events. Research has consistently shown that investors are significantly more likely to achieve their financial goals with professional help2, so it is definitely in your best interest (no pun intended) to ask for help from a qualified and regulated advisor.
Our two cents: Speak to an advisor about your concerns. Work with an advisor to put your mind at ease and invest with confidence. You should always be able to find a professional that makes you feel at ease and listens to your needs and concerns. Financial advice should be a long-term relationship, so don’t hesitate to speak to another member of a team or shop around for help if you are not completely comfortable.
5. Your relationship with your financial advisor
Sometimes it is not that we women do not want to seek advice, but that we leave the money management up to our partner or a relative, allowing ourselves very little direct contact with any advisors involved. As a result, we could be in situations where we know very little about the kind of investments we hold and investment strategies being followed. This can be dangerous, as we may find ourselves in a situation where we suddenly need to manage our finances and make financial decisions by ourselves due to a life changing circumstance, such as a death of your partner, breakdown of a relationship or loss of the family member who was dealing with the investments. This can be daunting and even overwhelming.. This, coupled with the emotional stress of such a situation can make it very difficult to make life-changing financial decisions, especially when you have no direct relationship with your financial advisor. In the case of a separation, there is the extra difficulty of who the existing advisor might side with and who should seek new advice. It may not be practical or even allowed at all for one financial professional to represent two individuals who are separating due to conflicts of interest.
Our two cents: If you are in a relationship, have a healthy, shared approach to managing your finances. Even if someone else that you trust is helping make the big decisions, be present and aware of what is happening and always see your financial advisor together, whenever possible to stay informed and make yourself and your opinions known. Build a relationship with your advisor and educate yourself on the process of managing your funds. Take control of your financial future, whether as a couple or an individual. Financial planning is a team effort – be a key part of that team.
A one-for-all generalised approach will not work – effective financial advice is about the individual and not their gender.
(1) IFS Study April 2020: Sector shutdowns during the coronavirus crisis: which workers are most exposed